In 1984, Warren Buffett wrote an essay titled "The Super Investors of Graham-and-Doddsville." The title pays
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homage to the godfathers of value investing (and authors of investing bible Security Analysis), Benjamin Graham and David Dodd. You can read the essay here.
In the essay, Buffett asked the reader to imagine a coin-flipping contest where every citizen in the U.S. participates. Every morning, the participants pair off. Everyone wagers $1. The person who correctly calls the toss wins $1. The loser is eliminated.
As the winners advance, their egos swell. As the field is further culled, the winners (who win by pure luck) get rich. And they believe skill – and not luck – has placed them at the top. As Buffett writes, these winners "will probably write books on 'How I Turned $1 Into $1 million in 20 Days Working 30 Seconds a Morning.' Worse yet, they'll probably start jetting around the country attending seminars on efficient coin-flipping and tackling skeptical professors with, "If it can't be done, why are there 215 of us?"
The essay is a folksy way for Buffett to describe the investment landscape. Lots of investors outperform because they get lucky... or simply because the markets are rising. There's no better personification of this than Bill Miller, manager of the Legg Mason Value Trust. Bill is famous for beating the S&P 500 for 15 straight years through 2005 (a time of rising markets and loose credit). When markets got shaky, Bill fell apart. The Value Trust lost 55% in 2008, worse than the 37% drop in the S&P 500 that year. Over the past five years, the fund has fallen at an average annual pace of 9.6%, one of the worst performers in its peer group. The fund's assets dropped from a peak of $21 billion in 2007 to $2.8 billion today.
Today, Bill Miller announced he would step down from the fund... another clueless victim of tightening credit and negative real interest rates. And to commemorate his departure, we present a couple of our Bill Miller "greatest hits" from previous Digests…
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We've always been critics of Bill Miller, the famed Baltimore-based money manager. Back in 2006 when Miller's fund started to blow up, we launched this salvo: "Bill Miller, the head of Legg Mason's $20 billion Value Trust, is famed for beating the S&P 500 for 15 years in a row. Having met him, heard him speak, and watched him pick stocks, I've always thought he was a very, very lucky hack with a penchant for buying his own book at the end of every year to push up his December performance..." |
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Since 2006, things have gotten even worse for poor Bill Miller... Miller is now dead last in his fund category over the past three years. Value Trust is down 24% this year, so far. His most recent debacle? Buying heavily into Countrywide Financial and Bear Stearns last fall. I once heard Miller say that he knows he's wrong about a stock when he can no longer get a price quote, meaning he likes to buy all the way down until a company finally goes broke. Seems like a strange strategy to employ, doesn't it? Well, he's certainly had the opportunity to buy all the way down lately. – Porter Stansberry, March 19, 2008 Digest |
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Finally... no matter how poorly your investments have done this year, I'd be willing to bet Bill Miller has done a lot worse. He bought Fannie, Freddie, and AIG all the way down. And that was after making huge bets on homebuilders and Bear Stearns. There's hardly been a bankruptcy in the past several years he hasn't owned. His fund is down to $8 billion in assets from $20.6 billion in June 2007. And he's finally decided to change his investment style. Essentially, rather than buying stocks all the way down, he's just going to mirror the S&P 500. He says GE and Wells Fargo look "safe and cheap." (I'd avoid both stocks just because Miller is buying.) – Porter Stansberry, October 1, 2008 Digest |
Best of luck to Sam Peters, who will take Miller's place on April 30, 2012. May he restore some of the fund's reputation.
Central banks purchased 148.4 metric tons of gold in the third quarter – more than double the level reported in the second quarter and nearly seven times higher than in the third quarter of 2010. This is the highest quarterly level since central banks became net buyers of gold in the second quarter of 2009. Says Marcus Grubb, managing director of investment at the World Gold Council…
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While one can account for some of the purchases – from Thailand, Bolivia, Russia etcetera – there is an unaccounted amount out there. A clue probably lies in the fact that a lot of buying has been from central banks that have been in surplus, [in regions] like Asia, Central Asian and Latin America. |
Grubb expects the unknown buyer to become public in a couple months. But we already know the "secret" buyer is China...
China is buying up the world's gold supply... And it can make you very rich in the process. In fact, China's gold situation may be the single best money-making opportunity traders will have to get rich in the next five years.
But first, a bit of background... Regular S&A readers are familiar with China's ravenous appetite for gold and silver. The country has a long and deep cultural affinity for gold and silver... which is why the Chinese government openly encourages its citizens to buy precious metals.
China has also "fast tracked" its mining industry over the past decade or so... And has become the world's No. 1 gold producer. China desperately wants to return to its status as one of the world's great powers... with one of the world's great currencies. But it knows it will need huge amounts of "real money" to back its currency. You can read about this incredible gold trend in this DailyWealth piece from two years ago.
China's massive gold purchases are a major reason gold has advanced for 10 consecutive years. And this year is a lock to make it 11 consecutive years. This week, the massive Chinese gold accumulation plan took another step forward when one of its state-owned gold companies made an all-cash, $1 billion buyout offer for Brazil-focused Jaguar Mining. The offer is a huge 73% premium over Jaguar's pre-offer share price.
You see, China isn't just buying gold bullion... And it's not just developing its own reserves... It's also looking to buy in-ground gold hoards all over the world. And it has the cash to do so. As one mining insider said a few years ago about China's resource acquisitions, "The Chinese are just a different kind of buyer."
So... as the Chinese and other Asian countries vacuum up the global gold supply... and as the United States and Europe debase their paper currencies... what is the single best way to play rising gold prices? What is the best way to get extremely rich from this uptrend?
For conservative investors, we recommend gold and silver bullion and high-quality gold stocks. Folks with some trading experience can consider smaller, "junior" gold stocks. You'll do well in those areas.
But option traders – specifically option traders who are following Jeff Clark's work in the S&A Short Report – stand to make truly spectacular amounts of money. In recent years, Jeff has worked out an incredible options trading strategy in the gold and gold stock market. His track record in just the past two years in gold and silver stocks is incredible. In particular, over the past six months, Jeff's readers have made the following returns…
- 70% in one month on Kinross Gold.
- 55% in two weeks again on Kinross Gold.
- 80% in two weeks on Market Vectors Gold Miners Fund (GDX).
- 100% in three weeks on Gold Fields.
- 140% in one week buying puts on SPDR Gold Shares Fund (GLD).
- 100% in three weeks on Seabridge.
- 65% in two weeks on Hecla Mining.
- 85% in one week on Exeter Resources.
To show you how he's turned the gold and silver markets into a broken slot machine, Jeff is doing something he's never done before. He's put together a unique presentation that goes over his gold stock "key" and how this unusual trading system is likely the most profitable way you can play the uptrend in gold prices.
We warn you: This system is not for everyone. But if you consider yourself a trader... or if you're simply curious about making gains in the gold market… we strongly encourage you to hear what Jeff has to say. You can access this presentation here.
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In today's mailbag… One subscriber speaks common sense to the "complainers." If you have a question or comment, e-mail it to feedback@stansberryresearch.com.
New 52-week highs (as of 11/16/11): Fairfax Financial Holding (FFH.TO).
"I will soon be 83. So I speak with considerable experience. I grew up in a small town In West Virginia in a middle-class family. My dad worked at three jobs. Men stopped at our house about every day for something to eat. Mother always gave them a sandwich and water. While I was too young to realize what the depression was (it was just the way it was). I can look back and see how difficult it was for most people. People made do and they helped one another.
"I was drafted during the Korean war, worked for 38 years, was phased out of my job at age 61, started Social Security at age 62 1/2. I finished graduate school in finance, my wife and I have three daughters who have done well. I paid for my daughters college education with the help of loans. In the final years before retirement, I paid all my debts (have none today) and saved as much as half my income for one year to start investing.
"In addition to stocks, I bought gold and silver between 1998 and 2002. The average price of gold, $375, silver $3.60 per ounce. I started late, but have done reasonably well. We live frugally, social security and wife's teachers retirement. Since I am concerned about the social security benefits, we have reinvested almost all of our dividends from day one through dividend reinvestment plans. This is our survivors plan.
"For the complainers, etc. my point is that it is up to you. There is no free lunch. Get up, put your mind and body in gear and make something of your life." – Paid-up subscriber Bill Gaston
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
November 17, 2011
A famous Buffett lesson... Bill Miller's coin-tossing job ends... China buying up gold... Clark's spectacular track record on gold... Fitch warns on U.S. banks' Europe exposure...